alice

NFTRH; Precious Metals, Technical & Macro Fundamental

A few weeks ago we laid out parameters by which the rally would be defined as a bounce vs. a bull phase. Let’s update the sector’s technical status.

Below are the milestones originally set for HUI.

And here is the daily chart that went with those parameters. Huey got above the EMA 20 and has been in an unspectacular up move. The lack of excitement can actually be a positive for this all too excitable sector. But yesterday HUI hit the SMA 50, which is the 2nd level of key resistance.

The status is that one parameter has been taken out, a 2nd is on the verge and a lot of obstacles remain on the upside. I still consider it a minor negative that RSI did not even become as oversold as on the previous highlighted occasions. But that could also be considered a minor positive divergence (got to love TA; it’s always got a ‘but’ handy).

hui

The daily multi-view chart has GDXJ and the XAU index above their SMA 50s. That bears watching.

precious metals

Shifting from the technical to the macro fundamental, the biggest positive the sector could receive would be for the stock market – and all that implied confidence in fiscal and monetary policy makers – to crack. I find this chart interesting because it shows how gold vs. the S&P 500 had been reliably in line with risk ‘off’ Treasury bonds until June, when the two went their separate ways. Up for consideration is whether or not a renewed rise in long-term T bonds could put in a positive divergence for gold vs. the stock market and hence, the sector’s macro fundamentals.

au spx

Meanwhile, here is the ugly picture of gold vs. stocks taken at current face value.

gold vs. stocks

Finally, an update of gold vs. commodities (incl. silver). Gold is neutral to constructive vs. CRB index, oil and agri. It is bear trending vs. industrial metals and palladium. These last two are indicative of the still well-intact global economy. Gold/Silver ratio looks bullish (while in a flag-like consolidation) and I still believe a renewed and vigorous upturn could finally instigate some problems for risk ‘on’ markets. But thus far, it has only gone hand in hand with the disinflationary backdrop that has kept policy makers’ jawbones leaning dovish (despite some pretenses to the contrary along the way).

gold vs. commodities

The bottom line is as it has been all along, for years. The best backdrop for the gold sector would be when market liquidity drains for real and gold starts to rise vs. the things that are positively correlated to economies and risk ‘on’. So far, the Fed has not taken back much liquidity (or confidence) with its small increments and occasional jawboning. The gold/silver ratio has in the past been an indicator of when market liquidity is actually on the wane.

A renewed rise in the GSR could initially hurt the gold sector as it usually does, but if it signals liquidity drainage across broader markets, that would be the key macro fundamental signal for this counter cyclical sector. If not, as we were…